Should South Asia Emulate the East Asian Tigers?

When thinking about development, I always look for opportunities for cross learning between regions. Having lived in and traveled extensively in East Asia and having worked in the South Asia Region for over a year, I often compare and think about prospects between the two regions. One question in particular is whether South Asia should aim to emulate East Asia’s manufacturing and export driven development model. Japan began using this model starting in the 1950’s and most East Asian countries particularly, South Korea, Malaysia, Taiwan, and most recently China have used manufacturing as a catalyst for growth.

According to the World Development Indicators, manufacturing accounted for over 30% of GDP in East Asia and Pacific while it is around 15% in South Asia. Bangladesh’s ready-made garment (RMG’s) industry is one example of manufacturing success as it has proven to be exceptionally competitive in the global market. However, holistically, I found that South Asia has distinctive characteristics and quickly moving towards an East Asian export-led model may not be most effective.

Starting in the 1960’s, South Korea, Taiwan, Hong Kong, and Singapore began attracting foreign direct investment with government support that allowed an accumulation of capital that led to a growing capital to labor ratio that favored manufacturing. Their labor intensive exports of consumer goods targeted highly developed nation. This reduced their demand for imports through measures such as tariffs ensured a positive balance of payments (more exports than imports). They then reinvested the funds into infrastructure and human capital which produced human capital dividends. Since then, the Asian Tigers have moved up the value chain and now design and produce LCD televisions, semiconductors, automobiles, and laptops, a considerable distance from where they started.

The East Asian Tigers’ advantage at the time, however, was that there were few competitive exporting nations. Over the decades through experience, the Tigers have developed extensive value chain experience and have built sufficient transport and port facilities to reduce logistics bottlenecks, enjoying considerable cost advantages. Although the cost of labor is very competitive in South Asia, trade facilitation costs tend to be higher.

Due to these dynamics, I believe South Asia should continue on its path of a more organic development model throughout different sectors and emphasize areas in which it has competitive advantages rather than putting too much emphasis solely on manufacturing.

One advantage that India has effectively demonstrated is its prowess in the IT and services industry which accounts for more of its GDP than China’s. Coupled with government support to reinforce this success through constructing software parks and placing greater emphasis on infrastructure, reputable and successful companies have emerged and gained international prominence.

Compared to China, India also has better English skills which allows for easier interaction with global clients and consumers, hence customer support centers are typically directed to India rather than China when outsourced. Both regions have an excellent opportunity to create synergy and mutually complement one another; China has recently replaced the US as India’s largest trading partner.

In Sri Lanka and Nepal, I saw vast opportunities for expanding tourism and exporting niche products to international markets due to the uniqueness of the culture and geography. The breathtaking mountains and fields of green, the endless rows of fertile coconut trees, the bounty of fish and indigenous wildlife were enthralling. The rest of the world has begun taken notice, and the New York Times ranked Sri Lanka the best tourist destination in the world. Sri Lanka has also begun to utilize its strategic geographic location for sea routes and is building a deep sea port in the southern city of Hambantota to facilitate trade and increase integration.

A more balanced path to development will create more opportunity and minimize negative consequences such as increasing income inequality. South Asia has a exceptional opportunity to take advantage of its respective competitive advantages through diversity of economies and industries.

Comments

Main factor of Tiger's economic progress is that they have been able to provide work for their vast human resources through manufacturing sector, while in India, unemployment coupled with population explosions in some communities aiming at grabbing political power through defective democracy here, is the greatest bottleneck. A person is required to be fed under all circumstances, but through work he/she produces wealth about 10 times to that what he/she consumes.
Providing employment to women through reservations while a huge manpower is unemployed is another reason for social and economic disparities in India. Now in rich classes, both men and women get employment while in poor classes, all are remaining unemployed.

It should also be noted the environmental degradation that follows the low-end manufacturing route. This cost should be added to any benefit that is achieved from producing low end goods to foreign markets.
Also I'm weary of tourism as a economic boon. China right now has a 1.26 trillion Yuan a year tourism industry. This however often leads to the destruction of local ecological habitats and wildlife. Moreover it is demeaning to local minorities and cultures as hordes of Han majority yuppies come stomping through. But then again some cash strapped communities, and local cadres welcome the inflow of cash, but at what cost?
However if the tourism industry in built upon a sustainable foundation much like Costa Rica, which accumulates large sums of money from eco-tourism, then I think places like Sri Lanka can benefit.
I do like the theme of building on competitive advantages.

Dear Qian, I think one country you have missed in the analysis PAKISTAN. Although there are lot of problems that Economy of Pakistan is facing but if law and order situation improved then ther is huge potintail as trde and energy coridor for Pakistan.
I also like to point out that issue raised i.e. consideration of comparative advantage, form the bsis of export led growth. As I perceive the East Asian Economies has also taken consideration of their comparative adavntages at the early stages of economic development.

Add one for Pakistan, - security -that distracted many foreign investment to invest in manufacutres and so on.
But also Pakistan is geographically one of landlocked countries, which is disadvantage for the economy in terms of logistics, besides transport costs. Other factors like cultural division, and religion would had been mindful factors too. Execpt the success of oil-driven rich countries like UAE, Saudi Aribia.
Well, I do not give mis-judgement, though it's a fact that there are mere change those countries to achieve what near the economy achievement of Asian tigers has made.

I agree with you that sicurity situation in Pakistan is halting the economy in all fronts. But geogrphically Pakistan and it not a landlocked country.I think the geogaphy of Pakistan can play a very handy role in its development.
Because Pakistan can provide deep sea facilities to landlocked Russian states and it can even contribute to the trade development of eastren states of China. Similarly it can also link the energy resuorces in Gulf to Chaina and India.
These are the advantages that other countries of the region are lacking.

Should South Asia - or other regions, for that matter - try to emulate East Asia's rapid increase in living standards, extraordinary reduction in poverty, high and rising integration into global product and financial markets, and substantially enhanced role in global economic affairs? Hard to argue what the answer is.
It is possible that not all paths to such outcomes include industrialization and reliance on exports. I am not aware of any, however. And, as a result, government policies that take each country's unique circumstances and the changing global environment into account need to facilitate that process.

I think you're spot on with several points. One is that if South Asia tries to be an industrial tiger, it is competing with the existing tigers who have been at it for much longer and are further along.
Another is that we have the opportunity in most of the South Asian countries to leapfrog by plugging in to the Knowledge Economy. India has done a great job in the first round but we should be aiming for more than outsourcing and body-shopping.
Finally, as a Sri Lankan who loves the rural countryside and wants to preserve the way of life and the environment it interacts with, I don't *want* to turn all the paddy fields and rainforests into industrial parks. How to improve peoples' lives while preserving all that is the trick, of course. One potential issue that another comment pointed out is that tourism, often seen as a great way to leverage natural bounty, has to be regulated - from inside or from above - to preserve the industry itself as much as the natural resources that need to be protected for their own value.

Thanks for your comment as always Ram. Would you say the lower classes rely more on the informal sector of the economy? I believe women are underrepresented in the workforce so a more balanced dynamic may be more beneficial. What are your solutions for India to develop in order to benefit all sectors of society?

Great point on environmental degradation. According to the Kuznets curve, the relationship between GDP and pollution is an inverted U. The Tigers have for the most part, moved past this and I think China's on the falling side of the upside down U though uneven between regions.
I'm highly supportive of eco-tourism and I think South Asia has a great opportunity to to take advantage of this. Creating a niche, specializing, and then investing in the competitive advantage will create great benefits. However, will the unique cultures be diluted and commercialized when hoards of tourists come in? Sri Lanka is especially keen on attracting Chinese tourists due to their spending habits.

Hi Naeem, I have little experience in Pakistan but do feel that the security situation has a negative impact on investment and tourism. You mentioned trade and energy corridor as a competitive advantage, could you elaborate on that? Thanks

Thanks for sharing your views, however, I believe Karachi and most of Southern Pakistan is along the coast of the Arabian Sea. A lot needs to be done but keep in mind Saudi Arabia and especially UAE were little more than desert a few decades ago.

I really like this point.
"Government policies that take each country's unique circumstances and the changing global environment into account need to facilitate that process."
I think we all agree that each country needs to create an industrial base in order to develop local industries and provide goods and services to the populace. The question is whether to rely on an export driven model.
Examples of finding competitive advantages and building niche industries would be trade facilitation in Singapore and Panama, I think Sri Lanka has a big opportunity in this. Other examples would be Swiss watchmaking or diamond cutting in Belgium. They found a competitive advantage, invested heavily, and have benefited greatly.

Thank you for your insightful views. I think the export driven manufacturing has high barriers to entry now and would be difficult to compete. China has specialization down to a science, there's "socks city," "furniture city," "painting city" where the factories have dormitory and cafeteria facilities and can be run 24/7 if demand is high. The also have direct expressway links to ports and can all ship out of the same container. India has demonstrated its IT prowess so it should support the industry in any way it can.
I loved Sri Lanka when I was there last month. Nature is so well integrated with life, the coconut trees, animals, paddy's, beaches, sealife, it was incredible. The last thing I'd want to happen is factories opening up everywhere.

I agree on the idea of capitalizing on each country's competitive advantages. Like one icon in government of a South Asian coutry has said that a country has to capitalize on its abundant resources. Find what is abundant, and cultivate it. Concentrate on building upon what is available, while constantly looking for ways to patch up for deficiencies.
On human capital, a country has to develop its individuals especially the youth based on their "talents" or natural abilities. If they are good in music, then send them to music school. If they are good in sports, then train them to be world-class athletes. If they are good intellectually, then provide them with the kind of Education that will maximize their potential to become good leaders and good teachers for example. This is the idea I heard from one of the leaders in South Asia.

On a funny note, "god made us, but rest are made in China" :) No surprise in China replacing USA in India.
I think instead of retrofitting other models, India should pursue it's own, primarily because of it's uniqueness. Like you mentioned, language ability is one big advantage.
Only if India can check it's population explosion and ever widening gap between richest and poorest, the future looks very bright. Besides, IT, medical field is also a big booming sector for India. I would always choose Indian textiles over Chinese. And presence of a democratic Government is always comforting.
I have seen growing trend, like snowballing, of Indian professionals in US returning to India as the lifestyle differences are narrowing. This should give a big big boost to India in coming years.

It is hard to argue with economic success. Panama, like the countries highlighted in your article has made it part of their national economic policy to begin to emulate the economic powers in the far east. It is not surprising that other countries are following suit.